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The short answer is no. However, can you be taxed for the forgiveness of debt? Yes. And that’s done with a Form 1099. The IRS views debt forgiveness like this: If somebody writes off a portion of your debt, then you have to declare that as income.

You have to declare that as 1099 income because you did not pay taxes on that income. However, the most common way that you pay taxes under a 1099 under debt forgiveness is if you are in a solvent status. Solvent status means you have more assets than liabilities. Our clients are typically–even when they graduate–still considered to be in a neutral status, which means they don’t have any more assets than they have liabilities. Sometimes they’re in a negative liability situation, which is called insolvency.

So, will this impact your taxes? No, it will not impact your taxes. Will you get a 1099? Yes, you will. You’ll get that from your creditors. Will you have to pay taxes on that? You’ll need to consult a CPA, but the vast majority of our clients do not have to pay any taxes for the debt that has been forgiven.